Sales Recovery Seems Distant Hope for Saturated Smartphone Market

FEATURE: With smartphone sales flat, some analysts say new models and innovations could restart sales in 2017. Others see the slowdown as a long-term trend.

Mobile Sales Slump 2

It's been a tough year for the U.S. smartphone market, with Apple reporting two straight quarters—the first in 13 years—in which its revenue didn't increase, while other established phone makers including BlackBerry and LG see their futures becoming murkier.

Mobile market watchers say the problem appears to be the saturation of the U.S. smartphone market in particular, where the vast majority of people interested in using mobile phones have bought one, leaving little margin for new sales growth.

Furthermore, most current mobile phone owners in the United States are satisfied enough with their current devices that they haven't been buying replacements on a regular basis.

Gartner global smartphone sales figures for the first quarter of 2016 showed Samsung continues to lead the world, selling 81.2 million phones to grab a 23.2 percent market share, followed by Apple, which sold 51.6 million iPhones to hold a 14.8 percent share. But Samsung's sales were essentially flat compared with the first quarter of 2015, when it sold 81.1 million smartphones and garnered 24.1 percent market share, according to Gartner.

Apple, in its latest third-quarter earnings report, on July 26 announced a 15 percent drop in global iPhone sales to 40.4 million units in the quarter, down from 47.5 million in the third quarter of 2015. Apple's third-quarter revenue and net income also fell for the second consecutive quarter as the iPhone maker reported $42.36 billion in revenue, down 15 percent from $49.6 billion a year earlier, and $7.8 billion in net income, a drop from $10.7 billion.

That contrasts with the company's previous string of 13 years of quarterly revenue reports without a decline, dating back to 2003. That streak came to a halt in the second quarter of this year, when the company reported revenue of $50.6 billion, 13 percent lower than the $58 billion the company posted a year prior.

So what does this trend mean for the U.S. smartphone market over the next few years? Will sales remain sluggish or will it pick up as owners replace aging devices or decide to upgrade to the latest model? Or is the current sales lull evidence of a maturing smartphone market that won't again see the rapid sales growth the market has enjoyed since 2007, when the first Apple iPhones hit the market?

There's Scant Short-Term Optimism

Jan Dawson, chief analyst with Jackdaw Research, told eWEEK he doesn't see the U.S. smartphone market recovering anytime soon.

"I think it is a long-term trend rather than a short-term trend" due to slowing upgrade cycles and because most users already have the devices, he said. That trend has been seen clearly in the past two financial quarters since the fourth quarter of 2015, as mobile carriers started reporting drops in sales after a steadily increasing curve for several years.

"It has always just grown and grown and grown after the start of the smartphone market," said Dawson. "The reality is we're going to be facing market saturation globally someday," though that's still in the distant future, he noted.

More change is coming, he said. In the U.S. market, smartphone makers that want to grow sales of their premium phones no longer can rely just on selling their own products as they have in the past. Now they have to come up with ways of eating into the sales of their rivals, he said.

"So if you want to grow your premium smartphone shipments, you have to take market share from competitors. Most companies are not going to grow because of that," Dawson said.

Meanwhile smartphone owners have significantly extended their upgrade cycles.

"The phones that people have today are good enough so they don't feel that same pressure to replace their phones," Dawson said. It used to be that consumers replaced their smartphones on an average of every two years. The average has been lengthening to three years recently for carriers. "People who can afford the premium smartphones around the world tend to already have them."